On The Rise of Populism in Europe


In the evolving global economy, the biggest powers are those with the most purchasing power for global trade, as well as largest populations with the chance to lead innovation trends. A lesson that the United States has learned over recent decades with the dot.com and tech booms, and China, through their mass government funding of quantum computing and CRISPR gene editing in just the past five years, is that as developed countries transition from labor to service economies, large, innovative populations are an important hedge against loss of manufacturing jobs. The EU was Europe’s response to this trend: 500 million people strong, the collection of countries is able to mitigate risks of large shocks; this lends an understanding of French President Emmanuel Macron’s urgency to save the Union from populist parties seeking to either break up the Union, or strip away some of its power, in his recent letter to the EU titled “Dear Europe, Brexit is a lesson for us all: it’s time for renewal”.

Despite not saying the word populist once in a recent letter to Europe, Macron beautifully explained the rise of far right and left parties in Europe by noting that Brexit symbolized “the crisis of a Europe that has failed to respond to its peoples’ need for protection from the major shocks of the modern world” (1). These two shocks can largely be broken into two brackets– economic insecurity and cultural-identitarian backlash– as per a 2017 European Commission report titled “Is More Europe or Less Europe the Response to Populism”. Unfortunately, a perfect storm of these two phenomena occurred in the past decade; first with the 2008 global financial crisis, followed by the 2015 European migrant crisis. The data shows how these worked in conjunction to allow populists to gut millions of citizens’ trust in the EU: an EU-estimated “Eurobarometer” showed citizen trust in the EU plunge from 57% pre-Lehman Brothers crash to 31% by the end of the Greek austerity crisis. With the economy recovering — greatly in part due to market stability supplied by three new banking instruments given to Mario Draghi’s ECB, including the massively deployed Quantitative easing — that trust had rebounded to 40% in 2015, only to fall back to the mid 30s as Angela Merkel became the face attributed to the allowing of millions of migrants of different cultural backgrounds into Europe. These two shocks in turn led to significant gains by populist parties in national elections: these parties mean vote share has risen from 10% in the 1960s to 25% today, including election victories in Greece, Hungary, Austria, Poland, the Czech. Republic, Italy, and the United Kingdom. While those two shocks were very real, one must both be worried about the democratic response of electing nationalist, isolationist leaders, and also hope Macron’s articulation of a more unified Europe through tangible policy can help the perceived nefarious bureaucrats in Brussels gain back trust in Europe (2).

As banks failed in the United States in 2008, a global contagion was unleashed; however, this did not just wreak havoc on international financial systems, it also allowed populist leaders to question the elite running these institutions apparently too powerful to fail, a point adroitly illustrated by Greece. For, as bureaucrats in the EU bailed out countries in exchange for austerity measures, populist leaders told their people that their vote actually did not count; the perceived democratic system was in shambles, run by the so called establishment, and only possibly fixed by the populist leaders who truly understood the needs of the common man. Greece was the EU country in the most peril during the financial crisis, and certainly not just due to exogenous reasons. The country boasted at peak a 182% debt: GDP ratio, 21% deficit, saw nearly a quarter of its workforce employed by the public sector, was crippled by tax evasion, and had a retirement age in the early 50s (3). In order to remedy this, needed bailouts were issues by the so called Troika– the triumvirate of the European Commission, the European Union, and the International Monetary Fund (IMF). After over a year of debate, the Troika gave Greece bailouts in 2010 and 2012, with contributions totaling 140 billion euros by the EU and 58 billion euros from the IMF. Greece was in absolutely dire need of this bailout: international investors would not buy their debt, while the bailout both gave Greece access to essentially interest free loans (when factoring inflation) and entitled the country to a massive haircut of 58% of the nominal value of its debt. Finally, in recent years, Greece has seen its budget deficit become a surplus, and has shown GDP growth since 2016 for nine quarters in a row.

However, the Greek bailout was not without hiccups. The troika’s admitted misunderstanding of fiscal multipliers exacerbated the cost of austerity imposed massive cuts to public expenditures: every dollar Greece cut from its budget (to achieve the troika mandated budget surplus) caused the Greek GDP to lose an additional 50 cents (4)! The Greek recovery was slow, and actually saw unemployment rise to 25%; youth unemployment is still over 30% in the country today. It would be bad enough if austerity was coming from Berlin and Brussels, but the inclusion of the IMF in the bailout allowed populists to make an argument that it was the whole world requiring pension cuts and a raised retirement age. And so, maybe it should not come as a surprise that Alexis Tsipras and his Syriza party came to power in 2015 on an anti-EU platform centered around ending austerity. As the Economist notes, “Syriza, which has communist roots, [chose] to link up with the right-wing Independent Greeks: the two parties share little beyond hostility to Greece’s treatment at the hands of its creditors” (5). This point is emblematic in extremist parties on opposite political spectrums, perhaps only united in their anti-immigrant and anti-EU stance, have formed coalitions in Europe, notably also in Italy.

While one may understand the rise of populism in Greece where it does seem bureaucratic measures from the EU, though ultimately key in saving the country’s economy, undoubtedly prolonged the economic woes of the country, it is far more difficult and frightening to attempt to comprehend the rise of populism in a clear financial crisis recovery success case such as Spain. Europe’s fourth largest economy, Spain saw a massive housing bubble, much like that of the United States, burst and bring hundreds of banks into peril with it. As 6.5 million homes were built between 1996 and 2006, the construction sector became home to 22% of Spanish GDP and 14% of its workforce, while real home prices jumped by 122%. This fairytale would soon end, and between 2007-2013, Spanish housing prices fell by 37%, while the country’s deficit rose from 4.2% in 2008 to 11.1% of GDP in 2011. Due to weak banking supervision, 56% of these bad mortgages were held by a variety of small banks. And so, the EU launched a bailout of 100 billion euros in 2012, though less than half of the funds were used. The Spanish government issued a plethora of reforms in conjunction with the bailout leading to a swiffer recovery. By 2013 all 219 measures of intended labour reform had been started, including 44 having been completed,  allowing lower labour unit costs. This, in conjunction with a well balanced plan to achieve budget surplus– 60% of savings were through cuts to expenditures with 40% through taxes– allowed the Spanish economy to recover by around 2013, a year which also saw Spain have a current accounts surplus for the first time in 27 years. One would think that such a remarkable story should not just highlight the importance of the ECB’s needed ability to intervene in extraordinary times– though this may be in contradiction to the so called no bail-out clause of the Maastricht treaty, but also lends credence to a point Mario Draghi made in a recent speech, stating “monetary policy can do is to create the basis for growth, but for growth to pick up, you need investment. For investment you need confidence, and for confidence you need structural reforms” (6). Yet, instead of Spain leading to calls for a strong European banking union, it led to the rise of populist parties. The Podemos party ran on a platform demanding that “Spaniards should recover sovereignty”, and received close to 20% of the vote. According to a Spanish news website, the nascent party scores best among youth, while some call it “the party of the 15M “indignant” protest movement” (7). With one of its positions being a renegotiation of debt obligations, it is clear that to come to power the party has once again drummed up anger against the European elite who led the bailout.

The final example, Britain, is fascinating because its populist movemenet has perhaps had the most success in Europe despite the country never needing a bailout to emerge from the crisis. UK Prime Minister David Cameron was able to use structural reforms to help the country emerge from the economic crisis. In a plan to reduce the public sector, expenditures contracted from 48.3% to 43%, and the country’s deficit more than halved from 9.7% to 4.4%. In turn, the UK’s post-crash GDP was 2.3% growth– higher than the European average of 2%–unemployment fell from 7.8 to 5.3%, and the country was able to lower taxes. Perhaps most impressively, at a time when wealth inequality was continuing to reach record highs across Europe, Britain’s Gini coefficient, which measures a country’s income inequality, actually fell from 32.9 to 31.6. Furthermore, the UK was able to enjoy the privileges and purchasing power of the EU without even being a member of the Euro or Schengen area. Despite economic success, as Brookings wrote in a report on European populism, “But even as Europe’s economic recovery has gathered pace and unemployment has declined, the populist surge has continued” (8). In fact, even before Syrian refugees flooded Europe to escape civil war, migrants from eastern Europe at the beginning of the financial crash helped Nigel Farage’s anti-EU, anti-immigrant UKIP party jump from 3% of Parliament in 2010 to 15% in 2012 (9). This highlights the second major shock the EU has noted in a changing Europe: cultural backlash. Astonishingly, over 40% of people who voted for Brexit in 2016 ranked immigration as their primary reason for doing so; the economy was an incredibly distant second place at 15% (10). Despite the Leave Campaign’s use of misinformation, and immigration in reality not remotely being on par as an issue with the dramatic repercussions of leaving the EU, the referendum passed, article 50 was triggered, and Britain may leave the EU.

Of these two issues which have led to growing populism in Europe– economic and cultural changes– Macron should absolutely try to strengthen the EU’s ability to offer expansionary policies to address the former. However, the response to Macron’s letter to Europe by German heir to Angela Merkel, Annegret Kramp-Karrenbauer’s (AKK), suggests he may have more backing in addressing recent cultural paradigm shifts. Unlike untrue red-herring attacks on migrants as the stem of economic woes, Europe absolutely needs structural reforms to help a middle class struggling in a globalizing world. The Euro Commission estimates median income to be flat for members since 2009 at just 120% of the 2005 middle income level. Poorer people– those most susceptible to populist diatribes– have been hit even harder; citizens whose income is 40% that of the median level have regressed from a similar 2009 number of 120% 2005 income to just 105% of 2005 income. Inflation adjusted, it is inexplicable that as the world has gotten wealthier, these socio-economically disadvantaged residents have become undeniably worse off in past decades! And as such, they are afraid of continuing trends of globalization: 47% of both the demographics of  working class and people with lower levels of education view globalization as a threat. Macron seems to understand that despite the great work done by the EU, people have been unable to tangibly see the benefits the union provides.

As such, in his letter he argues “Europe, where social security was created, needs to introduce a social shield for all workers, guaranteeing the same pay for the same work, and an EU minimum wage, appropriate to each country, negotiated collectively every year”. The uphill battle involved in the politics of creating the fiscal or even political union needed to usher in such a change, while the idea of the EU guaranteeing certain welfare benefits is sound, the choice of a minimum wage headlining the effort is a tad confusing. Despite some European countries boasting some of the best social programs in the world in areas such as healthcare and parental leave, it has had a less giving attitude toward unemployment. For example, a recent City University London study found that only about a quarter of Europeans felt governments should continue to pay out unemployment benefits if someone refused to accept a new job with a lower wage than their previous job. Further, it is quite difficult to fix a certain minimum wage across so many different economies, as in order to not set a wage so high as to be a burden on some countries, the Euro minimum wage would likely be lower than the national minimum wages in many countries. However, more than ⅔ of respondents in the same aforementioned poll voiced support for an EU-wide baseline standard of living for poorer persons (11).

If this type of eventual massive social program is an end goal, there are other elements in Macron’s letter that the EU should absolutely attempt to implement now. Continuing to impose rightful fines on large tech companies for avoiding taxes is not only important to encourage competition against such forces, but also can aid in the creation of further EU investment funds in startups across the continent. While Europe may not be able to compete with Silicon Valley, its GDPR policy is world leading in giving citizens control of their own data privacy, while recent guidelines on ethical AI also underscore the EU’s leadership in properly reigning in big tech (12). Once again, this is only possible with a powerful EU; if Chinese companies continue their trajectories to be market leaders in 5G and quantum technologies, they are unlikely to listen to a 10 member EU. In terms of migration, it seems both Macron and AKK have common ground in creating a unified migration policy across Europe to both control borders while also ethically dealing with humanitarian crisis as they arise. What is undoubtedly clear is that in order to continue to compete with top global powers, Europe is better off as a collective conglomerate than as individual nation states. populism has used fears of a changing world to cause this very isolation. Just this week, Italian Prime Minister Matteo Salvini announced the formation of a new Eurosceptic alliance in the lead up to the EU elections to “win and change Europe”. But it also was not long ago that Italian Prime Minister Matteo Renzi, along with Macron and Merkel offered a different, unified vision of Europe. And so, one must hope that starting with the upcoming EU elections, citizens can turn to such a vision of a Europe in even stronger union. A Europe able to incentivize the innovation needed to sustain service economies, provide universal social assistance to those who feel left behind by globalization, and continue this recent period of unprecedented peace in the world.

Post written by Eli Wachs.

Endnotes

    null
  1. Emmanuel Macron, “Dear Europe Brexit is a lesson for all of us: it’s time for renewal”

https://www.theguardian.com/commentisfree/2019/mar/04/europe-brexit-uk

2. Euro Commission, “Is More Europe or Less Europe the Response to Populism?”. https://ec.europa.eu/info/sites/info/files/20170424-164710_us_populism_final_no_notes_-_042417.pptx_.pdf

3. https://www.ceps.eu/system/files/COMDGGreekAusterityMyth.pdf

4. Washington Post, “An Amazing Mea Culpa from the IMF’S Chief Economist on Austerity”. https://www.washingtonpost.com/news/wonk/wp/2013/01/03/an-amazing-mea-culpa-from-the-imfs-chief-economist-on-austerity/?noredirect=on&utm_term=.0bab45171a7e

5. Economist, “Greece and its Discontents” : https://www.economist.com/europe/2015/01/29/greece-and-its-discontents

6. European Central Bank, “Introductory Statement to the press conference (with Q&A)”, https://www.ecb.europa.eu/press/pressconf/2015/html/is150122.en.html

7. The Local ES, “The Dummies’ Guide to Spain’s Podemos Party”, https://www.thelocal.es/20141106/dummies-guide-to-spains-podemos-party-politics.

8. Brookings, “The Rise of European Populism and the Collapse of the Center Left”. https://www.brookings.edu/blog/order-from-chaos/2018/03/08/the-rise-of-european-populism-and-the-collapse-of-the-center-left/

9. Brexit: What is It and why are we having an EU referendum? https://www.independent.co.uk/news/uk/politics/what-is-brexit-why-is-there-an-eu-referendum-a7042791.html

10. Euro Commission, “Is More Europe or Less Europe the Response to Populism?”.

11. Sep 2018 City University London “Europeans Receptive to new welfare policy ideas” https://phys.org/news/2018-09-europeans-receptive-welfare-policy-ideas.html

12. Sigal Samuel, “How do you make sure AI is trustworthy? The EU wrote a checklist” Vox, https://www.vox.com/future-perfect/2019/4/9/18303539/ai-eu-trustworthy-guidelines

Other Works Cited

IRIS, “The Diverging Economics of European Populism”, http://www.iris-france.org/85972-the-diverging-economics-of-european-populism/

Bloomberg, “Draghi Says EU Helps Protect Sovereignty in Globalized World” https://www.bloomberg.com/news/articles/2019-02-22/draghi-says-eu-helps-protect-sovereignty-in-globalized-world

Politico EU, “Germany’s CDU chief sets out European vision, responds to Macron”,

https://www.politico.eu/article/germanys-cdu-chief-sets-out-european-vision-responds-to-macron/

https://tradingeconomics.com/greece/gdp-growth

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s